Medicare Insurer Sues Government Over Star Ratings

A significant Medicare Advantage insurer, Alignment Healthcare, has filed a lawsuit against the Trump administration concerning the calculation of its 2027 star ratings. This legal action claims that the Centers for Medicare & Medicaid Services (CMS) used measures not properly established through the federal rulemaking process, potentially costing Alignment hundreds of millions of dollars.

In the complaint lodged in Washington, D.C.’s federal court, Alignment argues that CMS utilized the same ten measures for calculating these ratings without first officially establishing them via regulation, as required by Congress. CMS’s repeated reliance on these measures for 2027 raises legal concerns, according to Alignment’s ongoing challenge to its 2026 star ratings.

“CMS’s use of these measures raises significant legal questions,” Alignment stated in its complaint. These lower ratings may cost the company over $200 million in payments by 2028.

Alignment’s lawsuit highlights the importance of Medicare Advantage star ratings. Ratings range from one to five stars and are crucial for both insurers and beneficiaries. They help consumers compare Medicare Advantage plans and determine eligibility for quality bonus payments. Even minor changes, like the half-star drop that Alignment experienced, can have substantial financial impacts. The complaint explains, “A single half-star change can result in financial consequences amounting to hundreds of millions of dollars for a single plan.”

On October 8, CMS released the 2027 Medicare Advantage star ratings. Alignment’s California HMO contract fell from four stars to 3.5 stars. The share of members enrolled in plans rated four stars or higher plummeted from 98 percent in 2026 to 25 percent in 2027, raising concerns about the consistency and transparency of CMS’s rating process.

Currently, Alignment operates Medicare Advantage plans across five states. It is seeking the court’s intervention to set aside the 2027 ratings and recalibrate them using a methodology excluding the disputed measures. The lawsuit contends that CMS established its rating approach through technical notes, violating the Administrative Procedure Act, which necessitates formal rulemaking processes.

A spokesperson for Alignment told Newsweek, “Our lawsuit aims to align the Star Ratings program with Congress’s intentions, ensuring proper compensation for care delivered to our members.”

Challenges Against CMS

Federal scrutiny has previously targeted CMS over 20 measures used in the star ratings. Ten measures were declared beyond CMS’s statutory authority, while ten more were invalid due to improper implementation. CMS recalculated the 2026 ratings after litigation, yet continued using those measures for 2027, claims Alignment.

Michael Ryan, finance expert and founder of MichaelRyanMoney.com, said, “CMS’s reliance on measures without following rulemaking procedures poses serious questions. However, it doesn’t mean the ratings are inherently wrong.”

Congress designed the star program to enable beneficiaries to make informed decisions based on clinically validated quality measures. Alignment argues CMS’s approach deviates from Congress’s vision, failing to fulfil statutory objectives.

Implications for Medicare Beneficiaries

The lawsuit revolves around the impact on Alignment’s star ratings and payments under the Medicare Advantage system. Star ratings help consumers compare plans, with ratings affecting insurers’ eligibility for federal quality payments.

Financial literacy instructor Alex Beene warned, “Ultimately, seniors relying on these plans face risks, as reduced federal payments could mean fewer supplemental benefits and increased out-of-pocket costs.”

Looking Ahead

Alignment seeks a full recalibration of its 2027 ratings as the financial consequences extend into 2028 with affected payments. A courtroom victory might restore bonus payments without proving improvement in patient care.

Ryan emphasized the dispute’s complexity, stating, “Resolving a financial rating disagreement doesn’t equate to settling a healthcare quality debate.” Beneficiaries need clarity on care quality changes to make informed decisions.